Walmart’s international division continued to bolster the retailer’s bottom and top line with another strong performance in the second quarter, but ongoing sales weakness at the Walmart U.S. segment reflected unrelenting economic pressure on its customers, executives said.

Walmart international division, second quarter, Samís Club unit, Samís Club, Bill Simon, president and chief executive officer, Walmart U.S. division

Walmart profit up in second quarter of fiscal 2012

August 16th, 2011

BENTONVILLE, Ark. – Walmart’s international division continued to bolster the retailer’s bottom and top line with another strong performance in the second quarter, but ongoing sales weakness at the Walmart U.S. segment reflected unrelenting economic pressure on its customers, executives said.

The company’s Sam’s Club unit, meanwhile, continued to excel, as operating profit rose at a double-digit pace that exceeded sales growth of nearly 10%.

Income from continuing operations attributable to Walmart rose 5.7% to $3.8 billion on a 5.4% increase in total revenue to $109.37 billion. On a diluted per share basis, earnings grew 12.4% to $1.09, beating analysts’ consensus estimate of $1.08 per share.

International sales jumped 16.2% to $30.1 billion, while the top line at the Walmart U.S. segment edged up 0.4% to $64.89 billion. At Sam’s Club, the top line improved by 9.5% to $13.65 billion. Both Walmart U.S. and Sam’s Club grew operating profit faster than sales.

Total comparable-store sales for the U.S. businesses were flat for the quarter, which marked an improvement over the 1.4% decline reported for the fiscal 2011 quarter. Sam’s Club continued to demonstrate strength with a 5% increase that marked the sixth straight quarter of comp-store sales growth for the division.

At Walmart U.S., comp-store sales slipped 0.9%, the ninth straight year-over-year decline in that measure. However, the result fell within management’s forecast of a 1% decline to a 1% increase, and was also the best quarterly comp-store sales performance by the division in almost two years.

The average transaction during the quarter was higher but customer traffic was lower. Executives noted that both traffic and average transaction improved sequentially for each month. The improvement in customer count was driven in part by a 90-day price rollback program on gasoline that Walmart is offering to customers in 18 states.

"I’m encouraged by the sales momentum we have from the second quarter," said Bill Simon, president and chief executive officer of the Walmart U.S. division. "Our grocery and health and wellness business, representing two-thirds of our sales, continued to deliver positive comps. Our hard lines and apparel businesses are improving."

He added, though, that management remains concerned about ongoing economic pressure on the chain’s customers and the volatility that it creates in their shopping behavior. "The economy remains challenging for our core customers," Simon remarked during a prerecorded conference call. "Customers are still consolidating trips due to higher year-over-year gas prices. The swings in sales due to paycheck cycles remain pronounced, and our stores must staff and stock for the volatility, both up and down. We also have seen an increase in the number of customers relying on government assistance for food and necessities."

Moreover, Simon pointed out that customers are reacting to a 3.5% spike in grocery inflation during the quarter by trading down to lower price points and smaller pack sizes as well as putting off discretionary purchases. "Food inflation has replaced gasoline price as the most important household expense concern," he said. "In addition, more than 15% of Walmart moms in our monthly survey have experienced the loss of a household wage earner’s job in the last year. Moms of all income levels showed a drop in confidence over last year, with middle-income moms showing the greatest drop."

Despite the grim news on the shopper front, Simon said that the goal for the Walmart U.S. division remains delivering positive comparable-store sales by the end of the year. He also expressed confidence that the strategy being implemented is working, based on sales trends in early August. Comparable-store sales for the third quarter, which ends October 28, are again expected to range between negative 1% and positive 1%, compared with a 1.3% drop in last year’s quarter.